Dell has declared war on its one-time partner and now principal
rival, Hewlett-Packard. This pair has been fighting over computers
for a long time. But now, the No. 1 computer-maker is attacking the
No. 2 computer-maker where it really hurts: in printers and printer
ink cartridges.

A former reseller of HP printers, Dell will release its own
rebranded line of Lexmark inkjets and lasers over the next couple
of months, taking the fight to the only place HP is actually making
money. Dell is looking for more than just another revenue stream,
explains Tim Rhodes, CEO of Provizio, a competitive intelligence firm in
Boise, Idaho. It wants to cripple HP by starving it of ready
cash.

What that means for you is strong downward pressure on the price
tags of just about every type of inkjet and laser. HP, which ships
about half of all printers, is releasing a flood of significantly
cheaper models such as the Color LaserJet 2500. At $999 (street),
it's going for half the price of the printer it replaced. Nice,
but that's just an appetizer.

"We think we can cut the price of printer consumables by 40
percent from what HP is currently charging," CEO Michael Dell
told industry bigwigs at a recent analyst soiree.

That's pretty doable, says Rhodes, because Dell sells direct
and saves about that much in reseller margin alone. Doable, but not
easy--Hewlett-Packard is a marketing powerhouse that has turned
back many assaults. HP CEO Carly Fiorina, who dismisses Dell as
just a distributor of other people's stuff, points to the $900
million HP is spending this year on a new generation of ink
cartridges.

But Dell, which already sells about 2 million printers a year,
doesn't have to supplant HP to make a difference in your
printing bill. By squeezing the difference between manufacturing
cost and selling price, Dell could unhinge the marketing model
under which all printer-makers have operated for the past two
decades. That's good for you, but bad for just about all
resellers of computer prod-ucts. The humble printer cartridge was
the No. 1 retail sales generator in 2002, says NPDTechworld, and
one of the few areas in which a profit-starved com-puter industry
still has margin left. Ink cartridges are the crown jewels in more
than just HP's business.

Cheap and Cheaper
Look across your office over all those PCs, monitors, printers and
network adapters. About every piece of hardware has become a
commodity that delivers huge productivity improvements at
incredibly low prices.

Yet your ridiculously cheap inkjet or laser needs frequent
refills of ink or toner. Each could easily cost you a third to half
of the printer's original list price-over and over again. In
this razor/razor blades marketing model, the fairly complicated
printer is sold cheaply, and printer-makers profit by selling
disposable ink cartridges. Financial analysts refer to printers
dismissively as "sockets" for cartridges.

A $30 to $50 inkjet cartridge costs $2 to $4 to manufacture, a
$75 to $200 laser cartridge $10 to $20, says Mark Ansier, vice
president and managing director of TonerPlus/ALBAAT.
His company manufacturers and/or refurbishes both and sells them at
prices as much as 40 percent below the printer manufacturer's
list.

That wall of cartridges in Office Depot? The only difference
between many of them, says Ansier, is a tab here or a knob there
added to keep them from working in another brand or even model of
printer. Ansier makes a few changes and sells the same cartridge
for use across several different brands. He has to collect and
refill HP empties as is, though, because HP has a patented way of
melding the printer head to the ink reservoir.

Still, resellers like TonerPlus/ALBAAT have garnered 15 percent
of HP cartridge sales, says Lyra Research, and the longer a cartridge is on the
market, the more share the resellers capture. The rapid
introduction of new printers requiring unique cartridges only slows
them down for a while, notes Jim Forrest, managing editor of The
Hard Copy Supplies Journal.

Most of that $900 million HP is spending will be used to shore
up its aftermarket, predicts Ansier, with semiconductors that
inhibit cartridge refurbishing, and to come up with marketing that
will convince buyers it's dangerous to use non-HP ink
cartridges. Will we see fancy new printing technology? No, ink
cartridges haven't done much more than put ink on paper in
about a decade, says Ansier, who couldn't be happier that Dell
switched from HP to Lexmark printers. The 2 million printers with
hard-to-copy HP cartridges that Dell used to sell will now be
replaced by sockets for easy-to-copy Lexmark cartridges.

It's quite an apple cart Dell is about to upset. The rub
could come the first time you need to buy a cartridge quickly.
There's no calling up an office-supply store to deliver $50
worth of Dell consumables in a hurry. They'll only be sold off
the Dell Web site, which ships computers in five days. It's
unlikely Dell would ship low-ticket consumables more
quickly--unless you're willing to pay extra.

That would reduce the attraction of the Dell product, but
analysts expect the company to introduce ways for Dell computers or
printers to warn you when ink is running low. Dell might also be
counting on guys like Ansier to help serve "gotta have it
now" customers.

In any case, Michael Dell is about to introduce a new brand of
hardball to the printer business. Whether he succeeds or fails,
it's doubtful that printer and ink prices will ever be the
same.